Question

Linette, a single taxpayer, had the tollowing income and deductions tor the tax year 2018: C ck the icon to view the income and deductions. Click the icon to v ew the standard deduction amounts 을 (Cick the con to ew the 2018 tax rate schedule or he Single ng status. Read the requirements Requirement a. Compute Linette's taxable income and federal tax liability for 2018. First calculate the gross income, then calculate taxable income and the federal tax liability. (Calculate the tax using the tax rate schedule. Do not round interim tax calculations. Round the amount entered into the cell to the nearest whole dollar. If an input ficld is not used in the table, leave the input field empty, do not select a label or enter a zero.) Total income from whatever source derived Minus: Exclusions, as provided in the tax law Gross income

Answer 1

Part A

Salary	65000
Business income	22000
Interest income from taxable bonds	12000
Tax exempt bond interest	4700
Total income from whatever source derived	103700
Minus: exclusions provided in the tax law
Tax exempt bond interest	(4700)
Gross income	99000
Minus: deductions for adjusted gross income
Business expenses	(11500)
Adjust gross income (AGI)	87500
Minus: deductions from AGI
Itemized deductions	(15000)
Taxable income	72500
Tax liability (4453.50+(22%*(72500-38700)) =11889.50	11890

Part B

Marginal tax rate = 22%

Average tax rate= 11890/72500 = 16.40%

Effective tax rate= 11890/(103700-11500) = 12.90%

Part C

The marginal tax rate is the most important.

The main reason for it is that it measures tax savings possible from every additional single dollar deduction.